Morgan Stanley says changing to Proof of Stake might not solve Ethereum's scaling problems. An equity strategist for Morgan Stanley claims Ethereum beacon-mainnet merge will cause demand for graphics processors to plummet in the coming months. The Ethereum platform has been undergoing a parade of testnets preparing for its merge with Beacon Chain. This merge is a move to facilitate the blockchain's transition from operating a Proof of Work model, to Proof of Stake. The PoW consensus model understandably…
Many traders are optimistic about the blockchain’s development potential and recognize that volatility is inevitable with new technology. Some are asking how to invest in digital assets while maintaining some degree of stability.
A relevant part of investors frequently mentions stablecoins as a valid investment alternative. Anchoring the value of crypto to a fiat currency can undoubtedly sound appealing. However, fiat money depreciates as inflation increases, making stablecoins less valuable.
In this particular context, the crypto market is offering a relatively new solution: gold-backed tokens.
What Are Gold-Backed Cryptocurrencies?
Digital gold currency as an alternative payment mechanism has been around for a long time. Electronic gold was the first digital currency backed solely by gold to emerge in 1995. Note that this innovation entered the market shortly after the internet became widely available.
Until the end of this experience, millions of people worldwide were taking advantage of this service.
Before the invention of Bitcoin, other attempts to create digital gold money failed. When blockchain first appeared, it was clear that this technology would solve the past problems.
Conceptually, gold-backed crypto is a fascinating concept. Someone owning gold can link the value of a token to, say, 1 gram of gold. The coin’s price cannot theoretically move below its value in gold.
Why Do Investors Like Gold-Backed Tokens?
First, we need to understand the role of gold in the financial markets to comprehend why investors appreciate gold-backed coins.
What’s the big deal about gold? Despite its relatively limited asset class, the precious metal garners considerable media interest. One of the reasons for this popularity is that gold has established itself as an “anti-money” asset. In contrast to fiat currencies, many investors see gold as a stable way to store value.
In contrast, the supply of fiat money is theoretically endless. This reason is behind the disparity between the two assets.
Understanding the function gold has played in the economy can be easier to grasp by looking at our economic history. For as long as commercial activity has existed, gold and silver have had a relevant position in the economy. Primitive types of currency often used precious metals in the past.
To a large extent, gold and silver were the main means of exchange until the nineteenth century. The US Dollar was, in reality, a one-ounce silver coin when it first appeared on the market. Receipts for gold or silver in a vault were the earliest types of paper money in Western countries.
Before 1971, investing in gold was pointless since its price was fixed. In the 1970s, gold, on the other hand, began to turn into an actual asset class. US inflation soared beyond 14% at this time, and gold rapidly became a popular inflation-protection investment.
The price had climbed to about $2200 by 1980, but it fell significantly over the next two decades. The trend price reduction largely depended on a decrease in inflation and a long bull market on Wall Street.
Gold investments tend to fare well if a financial crisis, rising geopolitical tensions, or a war breaks out.
The advent of cryptocurrencies brought new variables to this market. Investors can now benefit from the growth potential of cryptocurrencies and rely on the gold value as a price floor.
Popular Gold-Backed Crypto on the Market
The market for gold-backed cryptocurrencies is growing, with more and more teams coming up with new concepts. We have included a few of the most notable initiatives in this sector in the following subsections.
Tether Gold (XAUT)
Tether Gold (XAUT) is an Ethereum-based ERC-20 token. A Tether wallet can help you send XAUT tokens to any other blockchain address.
One XAUT represents a single troy ounce of gold in the form of a gold bar. Users can verify the gold and the bar’s unique serial number. To verify the authenticity of their gold bars, owners need to consult an online database.
A British corporation called TG Commodities Limited is in charge of this gold amount. TG Commodities Limited trades the gold for cash and sends it to Switzerland based on the owners’ preference.
Pax Gold (PAXG)
Another well-known digital asset in the gold-backed crypto sector is PAX Gold (PAXG). For each token, there is an amount of gold kept in one troy ounce of Brink’s London Good Delivery gold bar. Owning PAXG entitles you to access the underlying gold, which the Paxos Trust Company holds for you.
The New York State Department of Financial Services (DFS) regulates Paxos as a trust and custodian corporation.
You may redeem your PAX Gold tokens for LBMA-approved Good Delivery gold bullion bars. Unallocated Loco London Gold is also a way to collect PAXG. Customers of Paxos can always exchange their gold for USD at the current gold market values.
DigixDAO developed DigixGLobal (DGX), a digital coin whose worth depends on the price of gold. The idea is pretty simple since one DGX represents one gram of gold.
Proof of Asset technology, or PoA, is at the core of the DGX ecosystem. The goal of PoA is to ensure that each DGX has enough gold to back up the token. The system securely holds the gold on the Ethereum blockchain.
These three primary nodes process PoA: vendor, third-party auditor (who checks gold’s purity and amount), and vault. The system distributes DGX in exchange for PoA cards that reveal the required information on the gold amount.
AABB Gold Token (AABG)
AABB is a precious and base metals producer, supplier, and distributor. Other gold-pegged tokens get their gold from a variety of sources. However, AABBG gets its gold entirely from the company’s mining operations.
As a result, investors receive a guarantee to receive their gold directly from the mine. In order to verify the gold assets of each token, the project employs a unique mine-to-token system. An official AABB Wallet is necessary to acquire the token. Furthermore, the project’s exchange platform offers over 400 tokens.
Perth Mint Gold Token (PMGT)
Trovio designed and distributed an ERC20 token called the Perth Mint Gold Token (PMGT) in October 2018. The Perth Mint’s central bank-grade vaults hold one troy ounce of actual gold for each token.
The Perth Mint’s GoldPass certificates are tokenized in the form of PMGTs. GoldPass digitizes actual gold as a digital certificate as a complete service gold investing platform.
PMGT has all the main features of a classic cryptocurrency. The system works thanks to a smart contract connecting Perth Mint gold to the tokens. The project, just like most of its competitors, can rely on a large amount of gold to back the cryptocurrency. Theoretically, the team can increase the number of coins by enlarging its gold reserves.
Despite having a reputation for being one of the safer investments, owning physical gold isn’t particularly easy. You can hold gold in the form of physical bullions and store it at home. This option is far from being practical, as not everyone can afford to have this type of facility.
Gold-pegged tokens make it significantly easier for individuals to own gold without ever needing to store it themselves. The currently growing inflation is bringing more interest into this market niche. Crypto enthusiasts, just like traditional traders, are looking for ways to protect their wallets under challenging times.